FSI Brief Examines Regulatory Responses to COVID-19 Pandemic
FSI published a brief on regulatory responses, within the global financial system, to the COVID-19 pandemic. The brief takes stock of the types of financial measures that have been implemented and the rationale for implementation of these measures, along with their pros and cons. It addresses these aspects of policy response based on a simple framework and a set of principles that can guide the assessment. The brief explains that regulatory policy responses should seek to support economic activity while preserving soundness of the financial system while ensuring transparency.
Since the start of the COVID-19 crisis, prudential and related authorities have implemented a number of measures to support the supply of credit to the economy. The authors highlight that the objectives of financial policies should influence the type and extent of the adjustments. A solid and sound financial system is a prerequisite for sustainable growth. Asymmetric policies that simply ease standards in bad times but do not tighten them in good times could generate excessive risk-taking in the long run. This suggests three principles that could guide the assessment of the adjustments:
- The adjustments should be effective in supporting economic activity. This should apply at least to the crisis period, and preferably even beyond, when establishing the basis for a solid recovery.
- The adjustments should preserve the health of the banking (financial) system. Banks should remain sufficiently well-capitalized, liquid, and profitable to underpin sustainable growth.
- The adjustments should not undermine the long-run credibility of financial policies. Credibility is hard to gain and easy to lose. Compromising the policies excessively in the short run can create serious long-term damage. From this perspective, adjustments should be temporary. Transparency is key in meeting this principle.
The authors have highlighted that the recommendation for banks to make full use of capital and liquidity buffers should go hand in hand with restrictions on dividends and bonuses and clarity concerning the process for rebuilding them. Flexibility in loan classification criteria for prudential and accounting purposes should be complemented with sufficient disclosure on the criteria banks use to assess creditworthiness. The publication of detailed guidance on the application of expected loss provisioning rules, combined with sensible transitional arrangements, may constitute a balanced approach to mitigating the unintended effects of the new accounting standards.
Related Links
Keywords: International, Banking, Accounting, COVID-19, Liquidity Buffer, Transparency, Disclosures, Basel III, Regulatory Capital, Expected Credit Loss, IFRS 9, FSI, BIS
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.

Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Related Articles
FINMA Approves Merger of Credit Suisse and UBS
The Swiss Financial Market Supervisory Authority (FINMA) has approved the takeover of Credit Suisse by UBS.
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
APRA Assesses Macro-Prudential Policy Settings, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) published an information paper that assesses its macro-prudential policy settings aimed at promoting stability at a systemic level.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
MFSA Sets Out Supervisory Priorities, Issues Reporting Updates
The Malta Financial Services Authority (MFSA) outlined its supervisory priorities for 2023
German Regulators Issue Multiple Reporting Updates for Banks
Deutsche Bundesbank published the nationally deactivated validation rules for the German Commercial Code (HGB) users on the taxonomy 3.2, which became valid from December 31, 2022
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.